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Banks compete with each other for customers, but soon they may face a new rival for their commercial lending business: the federal government.

But Maryland bankers say they are not worried, even as federal officials plan to offer short-term business loans in an effort to free up capital and perhaps also buy equity in banks.

With a credit crunch at many major financial institutions putting the squeeze on big and small businesses, the Treasury Department is looking at its options under the $700 billion bailout package passed last week.

"What Treasury is trying to do is to make sure there is money flowing in the economy," said James Chessen, chief economist for the American Bankers Association in Washington, D.C. "The goal is to try to get that lending restarted."

While many community and regional banks do not provide the type of commercial paper lines of credit used by the biggest corporations, they often provide loans to the smaller businesses that sell supplies to them, Chessen said.

If the biggest corporations fail to get credit, the problem will eventually work its way down to the suppliers, he said.

"It's all about trying to stabilize that market," Chessen said. "It's very difficult for companies to meet their payroll and pay their suppliers [without the lines of credit]. But that's not going to take away from day-to-day business of community banks in this country."

The nation's investment to try to solve the credit problem is a positive development, said Thomas Murphy, president of EagleBank's Montgomery County operations.

Smaller banks won't see it as competing with the federal government to provide loans, he said.

"It's a good thing," he said. "Our customers are some of those subcontractors who are dependent on money flowing up at the big companies. So way down the line the small local businesses might be vendors."

The global credit crisis hasn't hit community and regional banks such as his, he said.

"We feel pretty good," Murphy said. "Our pipeline is still very robust. I hate to see some of our brethren in trouble, but fortunately it seems to play well with EagleBank right now."

Community and regional banks closer to the loan sources have not taken on the same level of bad debt that some of the national institutions have, leaving them in a better position, Chessen said.

Treasury Secretary Henry Paulson seems to be offering something new almost daily to bring stability, said Daniel J. Schrider, president of Sandy Spring Bank in Olney.

"I don't think any one of them is bearing fruit yet," he said.

The federal government investment in banks shouldn't affect or compete against community banks, he said.

"For us, stability and confidence is the name of the game," Schrider said.

Stephen K. Heine, executive vice president for consumer and business banking of Provident Bank of Baltimore, said he didn't expect his bank to directly compete with the federal government to lend money to average businesses.

"They're doing it to provide capital," Heine said. "It's not a long-term investment. I see us still competing against the same people as we always have."

Staff Writer Kevin James Shay contributed to this report.